An unmet consumer need or a group of potential customers who are not yet purchasing a good or service. Gaps in the market represent opportunities for companies to expand their customer base by increasing awareness and creating targeted offers or advertising campaigns to reach the untapped market. Identification of gaps in the market is an important step in increasing market penetration.
Market gaps are most often created between trading sessions, such as during the night or over the weekend. A simple example would be a company surprisingly announcing its bankruptcy on a Saturday – traders would panic, and the opening price on the Monday could open below the closing price on the Friday.
This example shows that market gaps can be created by changes in the market sentiment, often caused or fuelled by fundamental changes.
Such fundamental changes include surprises to the financial market, such as natural disasters, political turmoil, acts of terrorism or simply a high impact news event.
The gap does not necessarily occur during the overnight period when markets are usually closed – it can also happen between on a shorter time frame.